An opportunity Europe has missed

The six reports in the EU Economic Governance package have finally been adopted by the European Parliament, albeit narrowly and with the political groups divided and disappointed. It is a package which has been difficult to explain by those involved in shaping it and is doubtless more difficult for the people outside to understand. These people are understandably bewildered by the crisis spreading before their eyes and the EU’s timid response to it. Unfortunately, the governance package is a testament to this timid and one-sided approach.

The package brought before us by the Commission was meant to deal with three stages of dealing with a crisis, namely, crisis prevention, crisis mitigation and crisis resolution. Have they done this? On balance the answer has to be no.

The reports by EPP MEPs Corinne Wortmann-Kool and Diogo Feio on the revision of the Stability and Growth Pact were adopted by very narrow majorities – by 333 votes to 303 for Mrs Wortmann-Kool and 339 to 304 for Mr Feio. One has to consider also the many abstentions.

These two reports, as well as the report by French Liberal Sylvie Goulard, deal at length with the use of financial sanctions to prevent countries from reaching dangerous levels of fiscal deficits and debts. The idea of financial sanctions was one that the EPP, S&D and Liberal groups all agreed to. Where we differed was in the size of the fines. The S&D position has always been that there should be sanctions but that there is no point in having fines so severe that countries will simply refuse to pay them. If a country is asked to pay cumulative fines of up to 0.6 per cent of their GDP do we really expect them to pay? In Malta’s case, 0.6 per cent would amount to over €30 million.

The more difficult and creative way to prevent a crisis by avoiding macro-imbalances, through peer reviews based on a scoreboard, was left to another report by my Portuguese colleague Elisa Ferreira. It is a measure of the more constructive approach that she took that her report was approved by 551 votes to 88 and, despite the pressures from government ministers, has at least reached a minimum set of desirable objectives.

But anybody searching for policies that would improve crisis resolution in the future would look in vain. The numerous sensible and well-thought out ideas put forward by both European and non-European economists over the past couple of years as to how we could get the affected countries out of this crisis and be better prepared for the next are conspicuous by their absence in this package. Indeed, I was particularly disappointed that the proposal by Mrs Goulard, myself and the EPP which had reached a strong parliamentary majority on Eurobonds, at the last minute got short shrift by the Council and has finished very disappointingly with a mere promise from the Commission to undertake a study on the subject. Nothing concrete, just a promise of a promise.

So how are we to assess this whole package?

Back when the Commission made its first proposals in September 2010, the whole objective of the exercise was to deliver a set of balanced reforms that would allow European countries to recover from their economic difficulties and start running to compete on the world stage. For this reason, it is right that all EU countries shed some of their extra fiscal weight and burdens. We all agree that no member state can compete economically when it is operating with high debt and budget deficit levels. But imposing dangerous austerity crash diets that make economies even weaker, as is happening in Greece and elsewhere, will prove to be completely counterproductive.

Europe needs to grow some economic muscle. It needs to invest. We need creative schemes to grow and generate jobs. But this governance package will not achieve these goals. I had hoped that the main political groups would work together to deliver a set of balanced and intelligent reforms that combined sanctions with incentives. This would have united the Parliament and given a strong statement of intent to member states. It is very disappointing that after so many months and negotiations none of the most intelligent proposals on the table found their way into this package.

The Times – Friday, 01.07.2011

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